Budget shows CAD39.8B deficit in fiscal 2024-25 and falling below 1% of GDP in two years.
The deficit is projected at CAD39.8 billion for the fiscal year that began April 1 or 1.3% of GDP, and CAD38.9 billion next year when Justin Trudeau's Liberals are due to call an election. That projection is better than investors had expected, though experts MNI spoke with Tuesday said big spending may be coming in next year's pre-election budget.
The budget once again spent a good chunk of the windfall from faster-than-expected inflation and growth with CAD35.9 billion of new measures over the next five years. The government also plans to find savings from departmental programs and proposes CAD18.2 billion of tax measures over five years aimed at the wealthy. Canada hasn’t run a substantial budget surplus since 2008.
The budget aims at winning back younger generations afraid they are being locked out of the housing market, a key reason Liberals have fallen 10 percentage points behind opposition Conservatives in the polls. "Our government won't let them get left behind," Freeland said in the budget.
Freeland's plan says it helps the BOC lower interest rates "as soon as possible," something investors say could happen in June. She also said it will keep Canada's nearly unique place of having multiple triple-A credit ratings. Deficits fall below 1% of GDP in two years and are projected to stay there, while debt as a share of GDP falls over each of the next five years.
The budget is based on a survey of private economists who see a soft landing this year even after the BOC raised rates 10 times to the highest since 2001. The consensus sees short-term interest rates falling while unemployment peaks at 6.5% in the fourth quarter of this year. Inflation is seen around 3% in the first half of the year and approaching the Bank's 2% target late this year.
Program spending continues to run faster than the economy's potential growth, advancing 6.7% this year. Federal spending growth follows big provincial budgets, and Bank Governor Tiff Macklem has said this kind of fiscal expansion could make the inflation fight a bit harder.
Public debt charges, which local media point out now eclipse defense spending, climb to CAD54.1 billion this fiscal year. That's equal to 1.8% of GDP and up from 1.2% two years ago reflecting higher global bond yields and more debt.
Amid potentially volatile bond yields the finance department said it will pare treasury bill sales and boost issues of 10-year bonds. Officials are still considering investor demand for more long-term bond sales. The debt plan also introduces a temporary one-month treasury bill to help the transition from BAs to CDOR financing.
